Supplementary written evidence submitted
by Professor Tim Besley, Kuwait Professor of Economics and Political
Science, London School of Economics
FUTURE STRUCTURE
OF OBR
Further to my comments at the hearing, I would
like to offer a few supplementary written comments.
WHAT SHOULD
OBR DO?
Broad mandate: I would prefer a broad overarching
mission -- something broad like "safe-guarding fiscal sustainability
for the UK". Within that, one could have narrower and specific
mandates which could evolve depending on circumstances. It would
be the broad mandate that could give OBR (given its independence)
scope to tackle issues that it felt were germane to its broad
mandate in its commentary role.
I see three distinct outputs of OBR which could
written into the structure:
— Short/medium term forecasting
The reasons why I separate out 1 and 2 is that
the type of model and considerations needed in each case are probably
quite different. For example, judgements on the economic cycle
are important for 1. while long-term growth and demographics are
important for 2. So I would personally think in terms of having
two models—one for each task (albeit with some common components).
As came up at the seminar, there is probably an important role
in 1 for trying to match up findings with consensus etc. And I
could see a role for the OBR to hold a regular (six-monthly) event
at which a range of public and private forecasters could come
and present their views and compare notes in an open and public
way. In organizational terms, I would probably link the team working
on 2 to the team producing work on the public sector balance sheet.
I think that 3 is an essential part of what OBR does and that
it should in this role commission specific pieces of work on issues
that affect its mandate, becoming an influential non-partisan
commentator on fiscal issues (to complement but not displace the
IFS). Commissioning some of the work by outsiders in collaboration
with OBR staff would help to keep the organization lean. This
commentary function should not be seen as separate to 1 and 2,
but integral to it. The OBR needs to develop its own in-house
competence on 1 and 2 in my view even at the risk of some duplication
of activities with what others are doing.
The commentary function has to allow some scope
to comment on the structure of taxation and spending where it
is germane to fiscal sustainability. For example, the degree to
which specific spending commitments on the future retired impact
on long-term sustainability or how particularly tax structures
(eg taxation of the financial sector) expose the public finances
to cyclical risk have to be considered.
In terms of effectiveness, I would suggest that
the OBR be given some guaranteed statutory access to certain specified
data and information from key sources—where necessary on
a privileged basis. This could be built into its statutes with
appropriate riders. Some kind of ink to ONS would be useful—the
Bank as you know is asked every year to comment on ONS's performance
and OBR could be given the same status both in relation to ONS
statistics relevant to the conduct of fiscal policy.
There are areas where I feel that OBR could
contribute to policy-relevant knowledge. For example, how to model
and deal with shocks, especially low probability, high cost events.
It should be able to commission work from outside experts.
HOW SHOULD
THE OBR WORK?
Independence is paramount. I can see the logic
of five year appointments. However, in the inception period, it
would make sense to stagger these so that not all members would
step down at the same time.
I would advocate creating a small (pro-bono)
oversight/advisory board that could meet infrequently and help
to produce an annual report on OBR activities. Such a board could
be very useful if the OBR's independence were ever under threat.
I am relaxed about the structure of the organisation
in terms of links across government and other institutions and
organizations. It would make a lot of sense to bring in staff
(possibly on secondment) from HMT, B of E, NIESR, IFS, academic
and the IMF for periods of time. It would be an important career
enhancement and would guarantee that a good cooperative relationship.
I view the "top" of the organization as where the independence
resides—it is less important at the more operational level.
There would have to be an agreement though, in relation to all
commentary whether it would have to be an official view of OBR
or in the case of commissioned work whether it was simply to move
the debate forward. It may be essential to make a distinction
between official OBR papers endorsed by the three members versus
"discussion papers" with a suitable disclaimer.
I could see a role for OBR in bringing together
applied macro research relevant to its mandate in the UK, with
meetings that bring government, researchers and government bodies
together on a regular basis for open discussion. This would raise
the quality of debate around the issues. The OBR should hold evidence
sessions to seek feedback on its work.
In terms of staffing, a team of six to eight
good economists assigned to each of the three functions above
would be adequate in my view. One could manage with fewer if the
commentary function were outsourced to a significant extent. A
team of around 20 economists in total would be enough to establish
an esprit de corps, to cover relevant expertise etc. This would
mean having an experienced team leader for each group. I would
hope that a number of the staff would have at least a masters
level training in economics and the salaries would be set to make
them competitive with GES and the Bank of England. (I would not
personally have a problem in the staff of OBR were affiliated
to GES, but some might see this as compromising independence.)
It would be useful to have someone in the organization to advise
on communications as this is an important role.
The OBR should be in a position to communicate
key international bodies such as the IMF, EU, and OECD. It would
be good to think about how the government will promote the OBR
in this respect and whether this would be built into statues governing
OBR.
TIMING/NATURE
OF FORECASTS
One thing that we have learned from the experience
so far is the difficulty of producing two forecasts in quick succession
before and after a budget. This was done, of course, in exceptional
circumstances. However, there is a question of whether the OBR
should do the budget day forecast. An alternative would be to
have OBR produce a forecast and commentary a significant period
after the budget. This would give it more time to digest the implications
for the budget for the medium term outlook and diffuse the prospect
of short term conflicts. It makes sense to me that published forecasts
would be in October and March. I do not believe that OBR should
displace the forecasting function of the Treasury and that the
Treasury team should produce the budget day forecast.
31 July 2010
| 
